In this week’s Financial Crime Wave, a customer of a United Kingdom bank sues on anti-money laundering suspicious transaction filings – and wins a peak behind the compliance curtain, SWIFT suspends some Iranian banks’ access to global messaging platform, authorities yell timber in October Ponzi scheme roundup, and more.


SWIFT says suspending some Iranian banks’ access to messaging system

The Belgium-based SWIFT financial messaging service said on Monday it is suspending some unspecified Iranian banks’ access to its messaging system in the interest of the stability and integrity of the global financial system. In a brief statement, SWIFT made no mention of U.S. sanctions coming back into effect on some Iranian financial institutions on Monday as part of U.S. President Donald Trump’s effort to force Iran to curtail its nuclear, missile and regional activities.

The SWIFT statement said suspending the Iranian banks access to the messaging system was a “regrettable” step but was “taken in the interest of the stability and integrity of the wider global financial system.” Having abandoned the 2015 Iran nuclear deal, Trump is trying to cripple Iran’s oil-dependent economy and force Tehran to quash not only its nuclear ambitions and its ballistic missile program but its support for militant proxies in Syria, Yemen, Lebanon and other parts of the Middle East, (via Reuters).


SFO says ex-Afren executives sentenced for fraud, money-laundering

Two former executives of collapsed oil company Afren were sentenced to up to six years in prison on Monday after they were convicted of fraud and money laundering over a $300 million business deal, Britain’s Serious Fraud Office (SFO) said. Former Afren Chief Executive Osman Shahenshah and former Chief Operating Officer Shahid Ullah laundered more than $45 million, some of which was used to buy luxury properties in Mustique and the British Virgin Islands, the SFO said. While the executives have been sentenced to a total of 30 years in jail, the terms will be served concurrently.

Shahenshah, who was also the co-founder of Afren, will serve six years, while Ullah will serve five years, the SFO said. Legal representatives for Shahenshah and Ullah did not immediately respond to requests for comment. The criminal investigation began in June 2015 following a self-report by Afren, while the defendants were charged with four offences in September last year, Shahenshah and Ullah created shell companies and agreed a side deal with one of Afren’s Nigerian oil partners from which they would benefit, without the knowledge of Afren’s board, the SFO said, (via Reuters).

Sports laundering

UK football clubs in live money laundering investigations 

Authorities in the United Kingdom are investigating football clubs amid concerns the sector is being used to launder dirty cash and clubs are underreporting suspicious behavior. Appearing before lawmakers on the Treasury Committee’s hearing on economic crime, Home Office minster Ben Wallace said that sports, like any other sector, is susceptible to money laundering and probes are currently underway.

Officials have expressed concern that while the banking sector is playing a leading role in alerting the authorities of suspicious issues that may be related to money laundering crimes, many other sectors, including sports, are not. Of the 620,000 suspicious activity reports (SARs) submitted, 83% were filed by the banking sector. Wallace told the committee that SARs filed by the football authorities “have not been enough,” (via KYC360).


UK barrister challenges sanctity of AML SARs, scores win to gain access

A London-based barrister has challenged a bank’s decision to file suspicious activity reports (SARs) about him, after it froze his accounts and provided limited evidence to back its actions – a move that strikes at the heart of anti-money laundering (AML) programs as these filings are supposed to be confidential and immune from civil and other information requests. NatWest began filing SARs on David Lonsdale in March 2017, when it froze his joint account for a number of days. In December it then froze his remaining six accounts.

When he requested information about the account freezes, the bank reportedly provided ‘limited documentary’ evidence about the SARs and did not disclose them. Lonsdale began legal proceedings against the bank after it informed him that it was going to shut down his accounts.

He made a number of claims, including breach of the Data Protection Act, and he also applied for permission to be allowed to view the SARs. The court granted him permission to view the SARs and also stated that the bank had not given him evidence to back any suspicions of money laundering, (via KYC360).

Securities/virtual currencies

SEC Charges EtherDelta Founder Over ‘Unregistered Securities Exchange’

The U.S. Securities and Exchange Commission (SEC) has charged Zachary Coburn, the founder of crypto token trading platform EtherDelta, with operating an unregistered securities exchange – a widely-watched ruling that adds some key insight to a still-coalescing body of legal knowledge. The regulator said Thursday that EtherDelta, which acts as a secondary market for trading ERC-20 tokens, had been providing a marketplace for buyers and sellers to trade ethereum tokens that the SEC deemed to be “digital asset securities.” It used an order book, an order display website and a smart contract built on ethereum, the agency said.

“EtherDelta’s smart contract was coded to validate the order messages, confirm the terms and conditions of orders, execute paired orders, and direct the distributed ledger to be updated to reflect a trade,” the SEC said. EtherDelta users conducted more than 3.6 million trades over an 18-month period “for ERC-20 tokens, including tokens that are securities under the federal securities law,” according to the release.

SEC Division of Enforcement co-director Stephanie Avakian said in a statement that “EtherDelta had both the user interface and underlying functionality of an online national securities exchange and was required to register with the SEC or qualify for an exemption.” Coburn has already settled the charges, according to the release. Though he did not admit to or deny the charges, he paid $300,000 in disgorgement, $13,000 in pre-judgement interest and a $75,000 penalty, (via CoinDesk).

Identity theft

U.S. Secret Service warns ID thieves are abusing postal service’s mail scanning service to steal data, identities

In a new twist revealing the creativity of criminals seeking to steal identity details, this week, the U.S. Secret Service issued an internal alert warning that many of its field offices have reported crooks are indeed using the U.S. Postal Service’s “Informed Delivery” to commit various identity theft and credit card fraud schemes. A year ago, KrebsOnSecurity warned that Informed Delivery, a new offering from the U.S. Postal Service (USPS) that lets residents view scanned images of all incoming mail, was likely to be abused by identity thieves and other fraudsters unless the USPS beefed up security around the program and made it easier for people to opt out.

The internal alert — sent by the Secret Service on Nov. 6 to its law enforcement partners nationwide — references a recent case in Michigan in which seven people were arrested for allegedly stealing credit cards from resident mailboxes after signing up as those victims at the USPS’s Web site. According to the Secret Service alert, the accused used the Informed Delivery feature “to identify and intercept mail, and to further their identity theft fraud schemes.” “Fraudsters were also observed on criminal forums discussing using the Informed Delivery service to surveil potential identity theft victims,” the Secret Service memo reads, (via KrebsonSecurity).

Ponzi schemes

Authorities yell timber on timber investment scam, fraudster pilfers millions, goes to Disneyland: October Ponzi scheme Roundup

In October in the financial crime world, the ghouls and ghosts did more than yield thrills and chills – they also in many instances engaged in a vanishing act with investor funds in the latest edition of the Ponzi Scheme Roundup. The publication is a must-read for anti-money laundering (AML) compliance officers and fraud teams as the fraudsters plying their sky-high interest rates and too good to be true deals need bank accounts to deposit fleeced and filched funds.

The reported stories reflect at least nine new Ponzi schemes worldwide; about 46 years of newly imposed sentences for people involved in Ponzi schemes; five guilty pleas or convictions, and an average age of approximately 52 for the alleged Ponzi schemers. The scams involved nearly $200 million in stolen funds. Here are some snippets:

  • In one case, a scammer held himself out as a Timber titan, in the business of buying timber rights from landowners and then reselling those rights to lumber mills at a higher price, promising rates as high as 13 percent.
  • In another instance, an individual banned for life by a trading regulator passed himself off as Rockstar commodities trader, eventually defrauding more than a dozen investors of $1.25 million.
  • In one of the more humorous vignettes, an alleged scammer filed papers asking a court to prevent prosecutors from calling his alleged ticket scheme a Ponzi scheme or using the words “sham,” “fleece” and “fraudulent.” Carton was arrested last year on charges that he was running a $4.6 million scheme in which he used money from investors in a ticket reselling business to pay his gambling debts. The court denied his request, (via the Ponzi Scheme Blog).


A look at how client profiles can better detect potential money laundering more accurately

Although banks already must engage in customer due diligence (CDD) and know-your-customer (KYC) provisions to craft risk assessments as part of an anti-money laundering (AML) program, some say true client profiles should go beyond transactional patterns. Using a client profile allows you to be more proactive in investigating compliance breaches. The client profile doesn’t just look at what’s happening on a particular account or even a specific transaction, it includes behavioral patterns, and it monitors the client’s network. When you combine behavioral patterns with network information and historical information, deviations to a client’s normal behavior are suddenly easy to detect and generates a signal that something suspicious might be going on.

This makes monitoring on client level much more relevant than monitoring on account or transaction level. By transcending monitoring based on the account level and by combining multiple data sources and monitoring routines, you can catch true positives where suspicious behavior would usually go unnoticed. Banks still monitoring their clients at the account level are at high risk of leaving financial crimes such as money laundering to go unnoticed. Account monitoring is a rather one-dimensional practice as individual transactions simply don’t always tell you the complete story, (via Business Forensics).

Hospitality industry

Amsterdam looking to crack down on money laundering in hospitality industry by forcing restaurants to prove clean source of funds

Amsterdam is using a new method to crack down on money laundering in the hospitality industry – mirroring other countries attempting to more aggressively into naming the individuals behind companies and requiring them to detail their source of wealth. The administrative court ruled that the burden of evidence can be switched. Which means that Amsterdam can ask new restaurants or pubs to prove their money is clean before issuing a permit, NOS reports.

Before this ruling, the burden of proof was on the municipality. The city could only revoke a permit if the municipality could prove that the establishment’s money was criminally obtained.  Now that method is reversed. If the source of the money remains unclear, the permit application will not be processed. This new method was devised by a special team containing delegates from the municipality, the Public Prosecution Service and the police, among others. The municipality hopes that this will make identifying money laundering easier, (via the NL Times).

Money laundering

Spain arrests four, seizes more than 115 properties worth more than 60 million euros in Venezuelan money laundering probe

Spanish police have arrested a former Venezuelan official and an exiled opposition leader’s relative and seized more than 100 properties in a money-laundering investigation into a ring that allegedly bought real estate in Spain with illicit funds from Venezuela. For any European or international banks involved in the real estate deals or that have ties to the individuals, they may need to tweak anti-money laundering systems to re-risk these entities, drop them or file any missed suspicious activity reports. Venezuela has been at the center of EU, U.S. and other probes related to vast corruption, fraud and money laundering investigations.

Antonio Ledezma, the exiled mayor of Caracas, confirmed that his son-in-law, Argentinian businessman Luis Fernando Vuteff, was among the four arrests in Madrid that were announced Thursday by the Spanish police. The National Police statement said international arrest warrants have been issued for three more suspects. The statement said police also seized more than 115 properties worth about 60 million euros ($68.9 million), including a hotel, dozens of apartments and a development with 60 luxury villas in the southern beach resort of Marbella, (via Time).

Sanctions/virtual currencies  

Iran has finalized the creation of its nationally backed digital currency, some say to evade U.S. sanctions: report

The Iranian government is looking to create a nationally backed crypto currency to help it circumvent stronger US sanctions that just snapped back into place, according to a recent report. Another recent report confirmed that the US Government has removed Iran from the list of countries which can access SWIFT for cross-border money transfers. As a result of the US Government sanction, Iran made it known that it has finalized the process of developing its national crypto, which is backed by the local fiat unit, the rial.

Recently, it was discovered that the company in charge of creating and issuing the token—Informatics Services Corporation (ISC), is just waiting for the approval of the Central Bank of Iran (CBI) before commencing the issuance of the yet-to-be-named digital currency to banking institutions for testing in payments, internal and interbank settlements.

The chief executive officer of Informatics Services Corporation (ISC), Seyyed Abotaleb Najafi confirmed the finalization of the development in a recent interview with Ibena, an Iranian news agency affiliated with the country’s central bank. Najafi further commented that the state-backed cryptocurrency can be used in a distributed and one-to-one framework for transferring without any institute’s interference, (via CoinDoo).

Virtual currencies

Swiss financial association publishes AML standards for digital assets, notes criminal, cyber risks for issuers, intermediaries

Switzerland’s Capital Markets and Technology Association (CMTA) adoption recently released what it considers a consensus among public and private sector bodies on how anti-money laundering (AML) standards should be interwoven into the crypto, or digital asset, sector, and the tech underpinning the field, distributed ledger technologies (DLT). These standards are designed to clarify for both issuers of digital assets and financial intermediaries dealing with such issuers or digital assets measures to be taken in order to comply with the Swiss regulations against money laundering and the financing of terrorism.

The 52-page report borrows heavily from many of the AML processes going on right now at large, sophisticated banks and is informed by recent global data leaks, corruption investigations, money laundering scandals and cyber hacks, noting that firms involved in, for instance, initial coin offerings and the like should capture bank account and international bank account number (IBAN) and Distributed Ledger Account Number (DLAN) details to better risk assess entities.

In that same vein, the report urges crypto exchanges and other operations involved in moving digital assets to bore down to the actual individual involved in transactions and don’t let entities transact anonymously or hidden behind impenetrable ownership structures, (via the CMTA).


U.S. dollar dominance, economic power and global sanctions reach: A look at how these forces attempt to force rogue regimes to re-engage

The United States on recently reactivated its most biting sanctions on Iran, prohibiting and penalizing business with Iran’s energy, shipping, and financial services sectors, as well as other activities – a move that has global economic and financial crime aftershocks beyond Iran. The move follows the United States’ unilateral withdrawal in May from the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Nuclear Deal. The re-imposition of sanctions puts the remaining parties to the JCPOA – in addition to Iran, Russia, China, France, the United Kingdom, and Germany, with the EU – in a difficult position. They want to remain faithful to the JCPOA and their foreign policy prerogatives, without the legal and commercial risks of U.S. sanctions. The balancing act is proving difficult to achieve.

The fallout from the U.S. withdrawal from the JCPOA, and the inability of allied and other nations to assuredly insulate themselves from the risk of U.S. sanctions, sharply illustrate the exceptional power of U.S. unilateral sanctions. Indeed, no country rivals the United States’ ability to control international business, finance, and banking through sanctions. Owing to the strength of the U.S. dollar, financial system, and business base, U.S. sanctions are uniquely global in reach and harsh in impact.

America’s economic and financial heft facilitates the extraterritorial reach of U.S. sanctions and other law. For example, global transactions denominated in U.S. dollars and processed through the U.S. financial system create a jurisdictional nexus between the United States and foreign parties, property, and events. This dynamic also magnifies AML and sanctions risks for the parties involved to ensure adequate entity due diligence, ownership analysis transaction filtering – and fuels the creativity of sanctions evaders to hide their ties to blacklisted regions, (via MassPointReuters).

Extraterritorial reach

United Kingdom High Court upholds extraterritorial reach of SFO Notices

The United Kingdom (UK) High Court of Justice recently ruled that the UK Serious Fraud Office’s “Section 2 notices,” which require persons to produce documents, have extraterritorial reach in certain circumstances. The U.K. has always been frustrated with America’s extraterritorial reach of its laws; and carve-out transactions, think U-Turn payments, to suit its needs – but yet is attempting to emulate the dynamic to better fight financial crime, (via Dipping through Geometries).

Virtual currencies/ICOs

As crypto field looks for federal guidance, regulations, Colorado cracking down on fraudulent ICOs at state level

Colorado’s state Division of Securities issued a cessation order to four cryptocurrency firms for issuing unregistered securities through Initial Coin Offerings (ICO). So far, the state’s Securities Commissioner has issued cease and desist orders to twelve ICOs for the same offense, (via Ethereum World News).